Inside Obama’s World: The President talks to TIME About the Changing Nature of American Power

In an exclusive interview with TIME's Fareed Zakaria, President Obama opens up on Iran, Afghanistan, China and the challenges the U.S. faces in navigating a rapidly changing world. A full transcript of their conversation follows

Fareed Zakaria: When we talked when you were campaigning for the presidency, I asked you which Administration’s foreign policy you admired. And you said that you looked at George H.W. Bush’s diplomacy, and I took that to mean the pragmatism, the sense of limits, good diplomacy, as you looked upon it favorably. Now that you are President, how has your thinking evolved?
President Obama: It is true that I’ve been complimentary of George H.W. Bush’s foreign policy, and I continue to believe that he managed a very difficult period very effectively. Now that I’ve been in office for three years, I think that I’m always cautious about comparing what we’ve done to what others have done, just because each period is unique. Each set of challenges is unique. But what I can say is that I made a commitment to change the trajectory of American foreign policy in a way that would end the war in Iraq, refocus on defeating our primary enemy, al-Qaeda, strengthen our alliances and our leadership in multilateral fora and restore American leadership in the world. And I think we have accomplished those principal goals.

Christopher Morris—VII for TIME

We still have a lot of work to do, but if you look at the pivot from where we were in 2008 to where we are today, the Iraq war is over, we refocused attention on al-Qaeda, and they are badly wounded. They’re not eliminated, but the defeat not just of [Osama] bin Laden, but most of the top leadership, the tightening noose around their safe havens, the incapacity for them to finance themselves, they are much less capable than they were back in 2008.

Our alliances with NATO, Japan, South Korea, our close military cooperation with countries like Israel have never been stronger. Our participation in multilateral organizations has been extremely effective. In the United Nations, not only do we have a voice, but we have been able to shape an agenda. And in the fastest-growing regions of the world in emerging markets in the Asia Pacific region, just to take one prominent example, countries are once again looking to the United States for leadership.

That’s not the exact same moment as existed post–World War II. It’s an American leadership that recognizes the rise of countries like China and India and Brazil. It’s a U.S. leadership that recognizes our limits in terms of resources, capacity. And yet what I think we’ve been able to establish is a clear belief among other nations that the United States continues to be the one indispensable nation in tackling major international problems.

And I think that there is a strong belief that we continue to be a superpower, unique perhaps in the annals of history, that is not only self-interested but is also thinking about how to create a set of international rules and norms that everyone can follow and that everyone can benefit from. So you combine all those changes, the United States is in a much stronger position now to assert leadership over the next century than it was only three years ago.

We still have huge challenges ahead. And one thing I’ve learned over the last three years is that as much as you’d like to guide events, stuff happens and you have to respond. And those responses, no matter how effective your diplomacy or your foreign policy, are sometimes going to produce less-than-optimal results. But our overall trajectory, our overall strategy, I think has been very successful.

Mitt Romney says you are timid, indecisive and nuanced.
Ah, yes.

I particularly like the third one. What do you say?
I think Mr. Romney and the rest of the Republican field are going to be playing to their base until the primary season is over. Once it is, we’ll have a serious debate about foreign policy. I will feel very confident about being able to put my record before the American people and saying that America is safer, stronger and better positioned to win the future than it was when I came into office.

And there are going to be some issues where people may have some legitimate differences, and there are going to be some serious debates, just because they’re hard issues. But overall, I think it’s going to be pretty hard to argue that we have not executed a strategy over the last three years that has put America in a stronger position than it was when I came into office.

Romney says if you are re-elected, Iran will get a nuclear weapon, and if he is elected, it won’t. Will you make a categorical statement like that: If you are re-elected, Iran will not get a nuclear weapon?
I have made myself clear since I began running for the presidency that we will take every step available to prevent Iran from obtaining a nuclear weapon. What I’ve also said is that our efforts are going to be … Excuse me. When I came into office, what we had was a situation in which the world was divided, Iran was unified, it was on the move in the region. And because of effective diplomacy, unprecedented pressure with respect to sanctions, our ability to get countries like Russia and China — that had previously balked at any serious pressure on Iran — to work with us, Iran now faces a unified world community, Iran is isolated, its standing in the region is diminished. It is feeling enormous economic pressure.

And we are in a position where, even as we apply that pressure, we’re also saying to them, There is an avenue to resolve this, which is a diplomatic path where they forego nuclear weapons, abide by international rules and can have peaceful nuclear power as other countries do, subject to the restrictions of the [Nuclear] Non-Proliferation Treaty.

But the way, the Iranians might see it as that they have made proposals — the Brazilian-Turkish proposal — and that they never go anywhere. They aren’t the basis of negotiations.
Yes, I think if you take a look at the track record, the Iranians have simply not engaged in serious negotiations on these issues.

We actually put forward a very serious proposal that would have allowed them to display good faith. They need medical isotopes; there was a way to take out some of their low-enriched uranium so that they could not — so that there was clarity that they were not stockpiling that to try to upgrade to weapons-grade uranium. In exchange, the international community would provide the medical isotopes that they needed for their research facility. And they delayed and they delayed, and they hemmed and they hawed, and then when finally the Brazilian-Indian proposal was put forward, it was at a point where they were now declaring that they were about to move forward on 20% enriched uranium, which would defeat the whole purpose of showing good faith that they weren’t stockpiling uranium that could be transformed into weapons-grade.

So, not to get too bogged down in the details, the point is that the Iranians have a very clear path where they say, We’re not going to produce weapons, we won’t stockpile material that can be used for weapons. The international community then says, We will work with you to develop your peaceful nuclear energy capacity, subject to the kinds of inspections that other countries have agreed to in the past. This is not difficult to do. What makes it difficult is Iran’s insistence that it is not subject to the same rules that everybody else is subject to.

Suppose that with all this pressure you have been able to put on Iran, and the economic pressure, suppose the consequence is that the price of oil keeps rising, but Iran does not make any significant concession. Won’t it be fair to say the policy will have failed?
It is fair to say that this isn’t an easy problem, and anybody who claims otherwise doesn’t know what they’re talking about. Obviously, Iran sits in a volatile region during a volatile period of time, and their own internal conflicts makes it that much more difficult, I think, for them to make big strategic decisions. Having said that, our goal consistently has been to combine pressure with an opportunity for them to make good decisions and to mobilize the international community to maximize that pressure.

Can we guarantee that Iran takes the smarter path? No. Which is why I have repeatedly said we don’t take any options off the table in preventing them from getting a nuclear weapon. But what I can confidently say, based on discussions that I’ve had across this government and with governments around the world, is that of all the various difficult options available to us, we’ve taken the one that is most likely to accomplish our goal and one that is most consistent with America’s security interest.

When you look at Afghanistan over the past three years — the policies you’ve adopted — would it be fair to say that the counterterrorism part of the policy, the killing bad guys, has been a lot more successful than the counterinsurgency, the stabilizing of vast aspects of the country, and that going forward, you should really focus in on that first set of policies?
Well, what is fair to say is that the counterterrorism strategy as applied to al-Qaeda has been extremely successful. The job is not finished, but there’s no doubt that we have severely degraded al-Qaeda’s capacity.

When it comes to stabilizing Afghanistan, that was always going to be a more difficult and messy task, because it’s not just military — it’s economic, it’s political, it’s dealing with the capacity of an Afghan government that doesn’t have a history of projecting itself into all parts of the country, tribal and ethnic conflicts that date back centuries. So we always recognized that was going to be more difficult.

Now, we’ve made significant progress in places like Helmand province and in the southern portions of the country. And because of the cohesion and effectiveness of coalition forces, there are big chunks of Afghanistan where the Taliban do not rule, there is increasingly effective local governance, the Afghan security forces are beginning to take the lead. And that’s all real progress.

But what is absolutely true is that there are portions of the country where that’s not the case, where local governance is weak, where local populations still have deep mistrust of the central government. And part of our challenge over the next two years as we transition to Afghan forces is to continue to work with the Afghan government so that it recognizes its responsibilities not only to provide security for those local populations but also to give them some credible sense that the local government — or the national government is looking out for them, and that they’re going to be able to make a living and they’re not going to be shaken down by corrupt police officials and that they can get products to market. And that’s a long-term process.

I never believed that America could essentially deliver peace and prosperity to all of Afghanistan in a three-, four-, five-year time frame. And I think anybody who believed that didn’t know the history and the challenges facing Afghanistan. I mean, this is the third poorest country in the world, with one of the lowest literacy rates and no significant history of a strong civil service or an economy that was deeply integrated with the world economy. It’s going to take decades for Afghanistan to fully achieve its potential.

What we can do, and what we are doing, is providing the Afghan government the time and space it needs to become more effective, to serve its people better, to provide better security, to avoid a repetition of all-out civil war that we saw back in the ’90s. And what we’ve also been able to do, I think, is to maintain a international coalition to invest in Afghanistan long beyond the point when it was politically popular to do so.

But ultimately, the Afghans are going to have to take on these responsibilities and these challenges, and there will be, no doubt, bumps in the road along the way.

From the perspective of our security interests, I think we can accomplish our goal, which is to make sure that Afghanistan is not a safe haven from which to launch attacks against the United States or its allies. But the international community — not just us; the Russians and the Chinese and the Indians and the Pakistanis and the Iranians and others — I think all have an interest in making sure that Afghanistan is not engulfed in constant strife, and I think that’s an achievable goal.

As the Chinese watched your most recent diplomacy in Asia, is it fair for them to have looked at the flurry of diplomatic activity — political, military, economic — and concluded, as many Chinese scholars have, that the United States is building a containment policy against China?
No, that would not be accurate, and I’ve specifically rejected that formulation.

I think what would be fair to conclude is that, as I said we would do, the United States has pivoted to focus on the fastest-growing region of the world, where we have an enormous stake in peace, security, the free flow of commerce and, frankly, an area of the world that we had neglected over the last decade because of our intense focus on Iraq, Afghanistan and the Middle East.

So if you look at what we’ve done, we’ve strengthened our alliances with Japan and South Korea — I think they’re in as good of shape as they’ve ever been. We have involved ourselves in the regional architecture of — including organizations like ASEAN and APEC. We’ve sent a clear signal that we are a Pacific power and we will continue to be a Pacific power, but we have done this all in the context of a belief that a peacefully rising China is good for everybody.

One of the things we’ve accomplished over the last three years is to establish a strong dialogue and working relationship with China across a whole range of issues. And where we have serious differences, we’ve been able to express those differences without it spiraling into a bad place.

I think the Chinese government respects us, respects what we’re trying to do, recognizes that we’re going to be players in the Asia Pacific region for the long term, but I think also recognize that we have in no way inhibited them from continuing their extraordinary growth. The only thing we’ve insisted on, as a principle in that region is, everybody’s got to play by the same set of rules, everybody’s got to abide by a set of international norms. And that’s not unique to China. That’s true for all of us.

But do you think they’re not?
Well, I think that when we’ve had some friction in the relationship, it’s because China, I think, still sees itself as a developing or even poor country that should be able to pursue mercantilist policies that are for their benefit and where the rules applying to them shouldn’t be the same rules that apply to the United States or Europe or other major powers.

And what we’ve tried to say to them very clearly is, Look, you guys have grown up. You’re already the most populous country on earth, depending on how you measure it, the largest or next-largest economy in the world and will soon be the largest economy, almost inevitably. You are rapidly consuming more resources than anybody else. And in that context, whether it’s maritime issues or trade issues, you can’t do whatever you think is best for you. You’ve got to play by the same rules as everybody else.

I think that message is one that resonates with other Asia Pacific countries, all of whom want a good relationship with China, all of whom are desperately seeking access to China’s markets and have forged enormous commercial ties, but who also recognize that unless there are some international norms there, they’re going to get pushed around and taken advantage of.

You think it’s inevitable that China will be the largest economy in the world? It’s now the second largest, even on PPP.
Well, they are — assuming that they maintain stability and current growth patterns, then, yes, it’s inevitable. Even if they slow down somewhat, they’re so large that they’d probably end up being, just in terms of the overall size of the economy, the largest.

But it’s doubtful that any time in the near future they achieve the kind of per capita income that the United States or some of the other highly developed countries have achieved. They’ve just got a lot of people, and they’re moving hundreds of millions of people out of poverty at the same time.

You have developed a reputation for managing your foreign policy team very effectively, without dissention. So how come you can manage this fairly complex process so well, and relations with Congress are not so good?
Well, in foreign policy, the traditional saying is, Partisan differences end at the water’s edge, that there is a history of bipartisanship in foreign policy.

Now, obviously, there were huge partisan differences during the Bush years and during the Iraq war. But I do think there’s still a tradition among those who work in foreign policy, whether it’s our diplomatic corps or our military or intelligence services, that says our focus is on the mission, our focus is on advancing American interests, and we’re going to make decisions based on facts and analysis and a clear-eyed view of the world, as opposed to based on ideology or what’s politically expedient.

And so when I’m working with my foreign policy team, there’s just not a lot of extraneous noise. There’s not a lot of posturing and positioning and “How’s this going to play on cable news?” and “Can we score some points here?” That whole political circus that has come to dominate so much of Washington applies less to the foreign policy arena, which is why I could forge such an effective working relationship and friendship with Bob Gates, who comes out of that tradition, even though I’m sure he would’ve considered himself a pretty conservative, hawkish Republican. At least that was where he was coming out of. I never asked him what his current party affiliation was, because it didn’t matter. I just knew he was going to give me good advice.

But have you been able to forge similar relationships with foreign leaders? Because one of the criticisms people make about your style of diplomacy is that it’s very cool, it’s aloof, that you don’t pal around with these guys.
I wasn’t in other Administrations, so I didn’t see the interactions between U.S. Presidents and various world leaders. But the friendships and the bonds of trust that I’ve been able to forge with a whole range of leaders is precisely, or is a big part of, what has allowed us to execute effective diplomacy.

I think that if you ask them, Angela Merkel or Prime Minister Singh or President Lee or Prime Minister Erdogan or David Cameron would say, We have a lot of trust and confidence in the President. We believe what he says. We believe that he’ll follow through on his commitments. We think he’s paying attention to our concerns and our interests. And that’s part of the reason we’ve been able to forge these close working relationships and gotten a whole bunch of stuff done.

You just can’t do it with John Boehner.
You know, the truth is, actually, when it comes to Congress, the issue is not personal relationships. My suspicion is that this whole critique has to do with the fact that I don’t go to a lot of Washington parties. And as a consequence, the Washington press corps maybe just doesn’t feel like I’m in the mix enough with them, and they figure, well, if I’m not spending time with them, I must be cold and aloof.

The fact is, I’ve got a 13-year-old and 10-year-old daughter, and so, no, Michelle and I don’t do the social scene, because as busy as we are, we have a limited amount of time, and we want to be good parents at a time that’s vitally important for our kids.

In terms of Congress, the reason we’re not getting enough done right now is you’ve got a Congress that is deeply ideological and sees a political advantage in not getting stuff done. John Boehner and I get along fine. We had a great time playing golf together. That’s not the issue. The problem was that no matter how much golf we played or no matter how much we yukked it up, he had trouble getting his caucus to go along with doing the responsible thing on a whole bunch of issues over the past year.

You talked a lot about how foreign policy ultimately has to derive from American strength, and so when I talk to businessmen, a lot of them are dismayed that you have not signaled to the world and to markets that the U.S. will get its fiscal house in order by embracing your deficit commission, the Simpson-Bowles. And that walking away from that,which is a phrase I’ve heard a lot, has been a very bad signal to the world. Why won’t you embrace Simpson-Bowles?
I’ve got to say, most of the people who say that, if you asked them what’s in Simpson-Bowles, they couldn’t tell you. So first of all, I did embrace Simpson-Bowles. I’m the one who created the commission. If I hadn’t pushed it, it wouldn’t have happened, because congressional sponsors, including a whole bunch of Republicans, walked away from it.

The basic premise of Simpson-Bowles was, we have to take a balanced approach in which we have spending cuts and we have revenues, increased revenues, in order to close our deficits and deal with our debt. And although I did not agree with every particular that was proposed in Simpson-Bowles — which, by the way, if you asked most of the folks who were on Simpson-Bowles, did they agree with every provision in there?, they’d say no as well.

What I did do is to take that framework and present a balanced plan of entitlement changes, discretionary cuts, defense cuts, health care cuts as well as revenues and said, We’re ready to make a deal. And I presented that three times to Congress. So the core of Simpson-Bowles, the idea of a balanced deficit-reduction plan, I have consistently argued for, presented to the American people, presented to Congress.

There wasn’t any magic in Simpson-Bowles. They didn’t have some special sauce or formula that avoided us making these tough choices. They’re the same choices that I’ve said I’m prepared to make. And the only reason it hasn’t happened is the Republicans were unwilling to do anything on revenue. Zero. Zip. Nada.

The revenues that we were seeking were far less than what was in Simpson-Bowles. We’ve done more discretionary cuts than was called for in Simpson-Bowles. The things that supposedly would be harder for my side to embrace we’ve said we’d be willing to do. The whole half of Simpson-Bowles that was hard ideologically for the Republicans to embrace they’ve said they’re not going to do any of them.

So this notion that the reason that it hasn’t happened is we didn’t embrace Simpson-Bowles is just nonsense. And by the way, if you talk to some of these same business leaders who say, Well, he shouldn’t have walked away from Simpson-Bowles, and you said, Well, are you prepared to kick capital gains and dividends taxation up to ordinary income —

— which is what Simpson-Bowles —
— which is what Simpson-Bowles called for, they would gag. There’s not one of those business leaders who would accept a bet. They’d say, Well, we embrace Simpson-Bowles except for that part that would cause us to pay a lot more.

And in terms of the defense cuts that were called for in Simpson-Bowles, they were far deeper than even what would have been required if the sequester goes through, and so would have not been a responsible pathway for us to reduce our deficit spending. Now, that’s not the fault of Simpson-Bowles. What they were trying to do was provide us a basic framework, and we took that framework, and we have pushed it forward.

And so there should be clarity here. There’s no equivalence between Democratic and Republican positions when it comes to deficit reduction. We’ve shown ourselves to be serious. We’ve made a trillion dollars worth of cuts already. We’ve got another $1.5 trillion worth of cuts on the chopping blocks. But what we’ve also said is, in order for us to seriously reduce the deficit, there’s got to be increased revenue. There’s no way of getting around it. It’s basic math. And if we can get any Republicans to show any serious commitment — not vague commitments, not “We’ll get revenues because of tax reform somewhere in the future, but we don’t know exactly what that looks like and we can’t identify a single tax that we would allow to go up” — but if we can get any of them who are still in office, as opposed to retired, to commit to that, we’ll be able to reduce our deficit.

Now, to your larger point, you’re absolutely right. Our whole foreign policy has to be anchored in economic strength here at home. And if we are not strong, stable, growing, making stuff, training our workforce so that it’s the most skilled in the world, maintaining our lead in innovation, in basic research, in basic science, in the quality of our universities, in the transparency of our financial sector, if we don’t maintain the upward mobility and equality of opportunity that underwrites our political stability and makes us a beacon for the world, then our foreign policy leadership will diminish as well.

Can we do that in a world with so much competition from so many countries? One of the things you do hear people say is, You know, we have all this regulation. You’re trying to make America more competitive, but you’ve got Dodd-Frank, you’ve got health care. There’s all this new regulation. And in that context, are we going to be able to be competitive, to attract investment, to create jobs?
Absolutely. Look, first of all, with respect to regulation, this whole notion that somehow there’s been this huge tidal wave of regulation is not true, and we can provide you the facts. Our regulations have a lower cost than the comparable regulations under the Bush Administration; they have far higher benefits.

We have engaged in a unprecedented regulatory look-back, where we’re weeding out and clearing up a whole bunch of regulations that were outdated and outmoded, and we’re saving businesses billions of dollars and tons of paperwork and man-hours that they’re required to fill out a bunch of forms that aren’t needed. So our regulatory track record actually is very solid.

I just had a conference last week where we had a group of manufacturing companies — some service companies as well — that are engaging in insourcing. They’re bringing work back to the United States and plants back to the United States, because as the wages in China and other countries begin to increase, and U.S. worker productivity has gone way up, the cost differential for labor has significantly closed.

And what these companies say is, as long as the United States is still investing in the best infrastructure in the world, the best education system in the world, is training enough skilled workers and engineers and is creating a stable platform for businesses to succeed and providing us with certainty, there’s no reason why America can’t be the most competitive advanced economy in the world.

But that requires us to continue to up our game and do things better and do things smart. We’ve started that process over the last three years. We’ve still got a lot more work to do, because we’re reversing decade-long trends where our education system didn’t keep pace with the improvements that were taking place in other countries; where other countries started to invest more in research and development, and we didn’t up our game; where our infrastructure began to deteriorate at a time when other countries were investing in their infrastructure; and, frankly, where we have gotten bogged down politically in ways that don’t allow us to take strong, decisive action on issues in ways that we’ve been able to do in the past.

And so my whole goal in the last three years and my goal over the next five years is going to be to continue to chip away at these things that are holding us back. And I’m absolutely confident there’s no problem that America is facing right now that we can’t solve, as long we’re working together. That’s our job.